“Rule 16 12(b)(6) authorizes a court to dismiss a claim on the basis of a dispositive issue of law.”
How later courts described this case
- “Rule 16 12(b)(6) authorizes a court to dismiss a claim on the basis of a dispositive issue of law.”
- “If any of the three requirements is not satisfied, jurisdiction in the forum 7 would deprive the defendant of due process of law”
- “[A]n attorney retained by an insurance company to 5 defend its insured under the insurer’s contractual obligation to do so represents and owes 6 a fiduciary duty to both the insurer and insured.”
- “A state may 8 assert either general or specific jurisdiction over a nonresident defendant.”
Written by the judges who cited it.
The opinion
1
2
3
4
5
6 UNITED STATES DISTRICT COURT
7 SOUTHERN DISTRICT OF CALIFORNIA
8
FELICIA OCAMPO, Case No.: 3:18-cv-01012-JAH-BGS
9 Plaintiff,
ORDER:
10 v.
11 (1) GRANTING THIRD-PARTY
UNITED STATES OF AMERICA;
DEFENDANT STARR SURPLUS
12 WESLEY PETONAK,
LINES INSURANCE CO.’S MOTION
13 Defendants. TO DISMISS THE THIRD CAUSE OF
ACTION FOR BREACH OF
14 _________________________________ FIDUCIARY DUTY IN THE FIRST
15 AMENDED THIRD-PARTY
COMPLAINT [ECF NO. 51];
16
WESLEY PETONAK,
17 (2) GRANTING THIRD-PARTY
Third-Party Plaintiff,
DEFENDANTS STARR WRIGHT
18
v. INSURANCE AGENCY, INC., STARR-
19 WRIGHT USA, STARR
STARR WRIGHT INSURANCE
ADJUSTMENT SERVICES, INC.,
20 AGENCY, INC., a Delaware corporation;
AND STARR WRIGHT RISK
STARR SURPLUS LINES INSURANCE
21 PURCHASING GROUP, LLC’S
CO., a Delaware corporation; STARR-
MOTION TO DISMISS THE FIRST
22 WRIGHT USA, a Delaware corporation;
AMENDED THIRD-PARTY
STARR ADJUSTMENT SERVICES,
23 COMPLAINT [ECF NO. 52]; AND
INC., a Delaware corporation; STARR
24 WRIGHT RISK PURCHASING GROUP,
(3) GRANTING IN PART AND
LLC, a Delaware limited liability
25 DENYING IN PART THIRD-PARTY
corporation,
PLAINTIFF’S MOTION FOR LEAVE
26
Third-Party Defendants. TO AMEND THE FIRST AMENDED
27 THIRD-PARTY COMPLAINT [ECF
NO. 60].
28
1 INTRODUCTION
2 Pending before the Court are the following three motions: (1) Third-Party Defendant
3 Starr Surplus Lines Insurance Co.’s (“Starr Surplus” or “the insurer”) motion to dismiss
4 the third cause of action for breach of fiduciary duty in the first amended third-party
5 complaint; (2) Third-Party Defendants Starr Wright Insurance Agency, Inc. (“Starr Wright
6 Insurance”), Starr-Wright USA, Starr Adjustment Services, Inc. (“Starr Adjustment”), and
7 Starr Wright Risk Purchasing Group, LLC’s (“Starr Wright Risk”) (collectively, “Non-
8 Insurer Third-Party Defendants”) motion to dismiss the first amended third-party
9 complaint for lack of personal jurisdiction pursuant to Federal Rule of Civil Procedure
10 12(b)(2) or, in the alternative, for failure to state a claim upon which relief can be granted
11 pursuant to Federal Rule of Civil Procedure 12(b)(6); and (3) Third-Party Plaintiff Wesley
12 Petonak’s (“Petonak”) motion for leave to amend the first amended third-party complaint.
13 (ECF Nos. 51, 52, 60). The motions have been fully briefed by the parties.
14 After careful consideration of the parties’ arguments and the applicable law, and for
15 the reasons set forth below, the Court GRANTS Starr Surplus’ motion to dismiss (“Starr
16 Surplus MTD”, ECF No. 51); GRANTS Non-Insurer Third-Party Defendants’ motion to
17 dismiss (“Non-Insurer MTD”, ECF No. 52); and GRANTS IN PART and DENIES IN
18 PART Petonak’s motion to amend (“Petonak Mot.”, ECF No. 60).
19 BACKGROUND
20 I. Ocampo’s Complaint
21 On May 21, 2018, Plaintiff Felicia Ocampo (“Ocampo”) filed a complaint pursuant
22 to the Federal Tort Claims Act (“FTCA”) against Defendant United States of America
23 (“USA”), alleging negligence and assault by an unnamed agent of the United States
24 Immigration and Customs Enforcement Division of the Department of Homeland Security.
25 (“Ocampo Compl.”, ECF No. 1). The complaint alleges that on August 6, 2017, the agent
26 brandished a gun and threatened to shoot Ocampo if she did not pull over while they were
27 both driving on Interstate-15 in San Diego County. (Id. at ¶ 7). The complaint further
28 alleges that after they pulled over, Ocampo asked the agent what he was doing, to which
1 the agent replied that “if Ocampo did not shut her mouth, he was going to put his gun in
2 her mouth and shut it for her.” (Id. at ¶ 8). After the agent took Ocampo’s driver license
3 and proof of insurance, he returned to Ocampo’s vehicle and stated that Ocampo “was
4 lucky” to get off without a citation. (Id. at ¶ 9). The agent then left the scene without
5 identifying himself. (Id.) The agent was later identified as Homeland Security
6 Investigations Agent Wesley Petonak. (“USA MTD”, ECF No. 4-1 at 3).
7 On or about August 8, 2017, Ocampo reported the stop to California Highway Patrol
8 (“CHP”). (“Petonak FAC”, ECF No. 47 at ¶ 24). Following that report, CHP contacted
9 the Department of Justice’s Office of Professional Responsibility (“OPR”) regarding
10 Ocampo’s report, and an OPR investigation ensued. (Id.) On August 9, 2017, Petonak
11 provided this information to Third-Party Defendants by filing an insurance claim pursuant
12 to a federal employee professional liability policy obtained on or about July 25, 2017. (Id.
13 at ¶ 25). Third-Party Defendants initially determined there was coverage under the policy,
14 but it was subject to Petonak’s conduct being within the course and scope of his federal
15 employment. (Id. at ¶¶ 16-17, 28). Accordingly, Third-Party Defendants referred Petonak
16 to the law firm of Brownell Landrigan, P.C. in Washington, D.C. to represent him in the
17 OPR investigation. (Id. at ¶ 28). Brownell Landrigan assumed representation for the OPR
18 investigation. (Id. at ¶ 29). Nearly a year later, on May 21, 2018, Ocampo filed the instant
19 lawsuit.
20 On July 23, 2018, the USA filed a motion to dismiss for lack of subject matter
21 jurisdiction on the ground that the FTCA’s limited waiver of sovereign immunity does not
22 apply to Ocampo’s claims because Petonak was off-duty and not acting in the course and
23 scope of his federal employment. (USA MTD at 2).1 Within twenty-one days after
24 receiving service of the motion, on August 10, 2018, Ocampo filed a first amended
25 complaint, adding Petonak as a Defendant pursuant to Bivens v. Six Unknown Narcotics
26
27
1 On the same day, the USA filed an amended motion to dismiss and withdrew the first
28
1 Agents, 403 U.S. 388 (1971). (“Ocampo FAC”, ECF No. 7 at ¶ 1). Accordingly, on August
2 15, 2018, the Court denied the USA’s motion to dismiss as moot. (ECF No. 9).
3 On or about August 15, 2018, Petonak filed another insurance claim with Third-
4 Party Defendants for coverage in relation to Ocampo’s lawsuit. (Petonak FAC at ¶ 31).
5 On or about August 20, 2018, Third-Party Defendants sent Petonak a letter stating that
6 there is no coverage for the complaint under the policy and no further coverage for the
7 OPR investigation because they found Petonak was acting outside the course and scope of
8 his federal employment when he stopped Ocampo. (Id. at ¶ 32-33).2
9 II. Petonak’s Third-Party Complaint
10 On November 9, 2018, Petonak filed a third-party complaint against Starr Surplus,
11 Starr Wright Insurance, Starr-Wright USA, Starr Adjustment, and Starr Wright Risk
12 (collectively, “Third-Party Defendants”), alleging breach of contract, insurance bad faith,
13 breach of implied obligation of good faith and fair dealing, breach of fiduciary duty, and
14 unreasonable failure to defend pursuant to California law. (“Petonak Compl.”, ECF No.
15 24). The third-party complaint alleges, inter alia, that Third-Party Defendants failed to
16 provide Petonak with legal representation in both Ocampo’s lawsuit and in the OPR
17 investigation pursuant to the federal employee professional liability policy. (Id.)
18 On February 6, 2019, Petonak was served with a notice of proposed removal from
19 federal service from the ICE Discipline and Adverse Action Panel (“DAAP”). (“Damiani
20 Decl.”, ECF No. 60-1 at ¶ 16). Petonak was then removed from his position on April 18,
21 2019. (Id. at ¶ 18).
22 On May 17, 2019, Non-Insurer Third-Party Defendants filed a motion to dismiss the
23 third-party complaint for lack of personal jurisdiction or, in the alternative, for failure to
24
25
26 2 On September 24, 2018, and October 26, 2018, the USA and Petonak filed answers to
27 Ocampo’s first amended complaint, respectively. (ECF Nos. 14, 21). The case ultimately
settled, and the Court granted the parties’ joint motion to dismiss with prejudice on June
28
1 state a claim upon which relief can be granted. (ECF No. 44). Separately, on the same
2 day, Starr Surplus filed a motion to dismiss and strike the second and fifth causes of action
3 in the third-party complaint for insurance bad faith and unreasonable failure to defend.
4 (ECF No. 45).
5 On May 20, 2019, Petonak filed an appeal of removal from his position to the United
6 States Merit Systems Protection Board (“MSPB”). (Damiani Decl. at ¶ 19).
7 Within twenty-one days after service of the motions to dismiss, on June 7, 2019,
8 Petonak filed an amended third-party complaint pursuant to Federal Rule of Civil
9 Procedure 15(a)(1) against Third-Party Defendants for breach of contract, breach of
10 implied obligation of good faith and fair dealing, and breach of fiduciary duty.3 (Petonak
11 FAC at 1). Accordingly, on June 7, 2019, the Court ordered the Third-Party Defendants’
12 motions to dismiss Petonak’s initial third-party complaint withdrawn without prejudice.
13 (ECF No. 50).
14 On June 21, 2019, Non-Insurer Third-Party Defendants filed a motion to dismiss
15 Petonak’s first amended third-party complaint for lack of personal jurisdiction pursuant to
16 Federal Rule of Civil Procedure 12(b)(2) or, in the alternative, for failure to state a claim
17 upon which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6).
18 (Non-Insurer MTD). Separately, on the same day, Starr Surplus filed a motion to dismiss
19 the third cause of action for breach of fiduciary duty in the first amended third-party
20 complaint. (Starr Surplus MTD). On August 12, 2019, Petonak filed oppositions to the
21 motions. (“Opp’n to Starr Surplus MTD”, ECF No. 53; “Opp’n to Non-Insurer MTD”,
22 ECF No. 54). On August 19, 2019, Third-Party Defendants replied. (“Starr Surplus
23 Reply”, ECF No. 55; “Non-Insurer Reply”, ECF No. 56).
24 In February 2020, the MSPB appeal proceedings concluded. (Damiani Decl. at ¶
25
26
27 3 Petonak’s first amended third-party complaint omitted the insurance bad faith and
unreasonable failure to defend causes of action from the original third-party complaint.
28
1 20). Petonak then prepared a proposed second amended third-party complaint adding
2 allegations against Third-Party Defendants for failure to provide him with defense or
3 indemnification relating to the DAAP removal and MSPB appeal proceedings. (Id. at ¶
4 21; “Petonak’s Proposed SAC”, ECF No. 60-2 at 11-25). On September 10, 2020, the
5 parties met and conferred on the proposed edits, to no avail. (Damiani Decl. at ¶ 22).
6 On December 15, 2020, Petonak filed a motion for leave to amend the first amended
7 third-party complaint pursuant to Federal Rule of Civil Procedure 15(a)(2). (Petonak
8 Mot.). On January 20, 2021, Third-Party Defendants filed an opposition. (“Opp’n to
9 Petonak Mot.”, ECF No. 62). On February 3, 2021, Petonak replied. (“Reply”, ECF No.
10 63).
11 DISCUSSION
12 I. Non-Insurer Third-Party Defendants’ Motion to Dismiss Pursuant to Fed. R.
Civ. P. 12(b)(2)
13
14 Non-Insurer Third-Party Defendants argue Petonak’s first amended third-party
15 complaint should be dismissed as jurisdiction cannot be established. (Non-Insurer MTD
16 at 10-18). Specifically, Non-Insurer Third-Party Defendants argue this Court does not have
17 either general or specific personal jurisdiction over them,4 as they are not incorporated in
18 or have their principal place of business in California, nor have they purposefully availed
19 themselves of the benefits and protections of California law. (Id.) Non-Insurer Third-Party
20 Defendants additionally argue that an alter ego or agency theory does not remedy the
21 personal jurisdiction defect, as they are not alter egos of one another or Starr Surplus, and
22 the actions of an insurer’s agents are attributable to the insurer alone for purposes of
23 personal jurisdiction. (Id.)
24 In his opposition, Petonak fails to address the issue of general jurisdiction. The
25 Court construes his failure to do so as an abandonment of that particular claim and therefore
26
27
4 Third-Party Defendant Starr Surplus does not challenge jurisdiction in the Third-Party
28
1 will not analyze the existence of general jurisdiction. See Qureshi v. Countrywide Home
2 Loans, Inc., No. 09-cv-04198, 2010 WL 841669, at *6 n.2 (N.D. Cal. 2010) (citing Jenkins
3 v. County of Riverside, 398 F.3d 1093, 1095 n.4 (9th Cir. 2005)) (deeming plaintiff’s failure
4 to address, in opposition brief, claims challenged in a motion to dismiss an “abandonment
5 of those claims.”). The Court’s discussion will therefore be limited to the question of
6 whether specific personal jurisdiction exists as pled by Petonak. See Haisten v. Grass
7 Valley Med. Reimbursement Fund, Ltd., 784 F.2d 1392, 1396 (9th Cir. 1986) (“A state may
8 assert either general or specific jurisdiction over a nonresident defendant.”).
9 A. Legal Standard
10 “Where a defendant moves to dismiss a complaint for lack of personal jurisdiction,
11 the plaintiff bears the burden of demonstrating that jurisdiction is appropriate.”
12 Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 800 (9th Cir. 2004) (quoting
13 Sher v. Johnson, 911 F.2d 1357, 1361 (9th Cir. 1990)). The demonstration of jurisdiction
14 requires that Plaintiff “make only a prima facie showing of jurisdictional facts to withstand
15 the motion to dismiss.” Pebble Beach Co. v. Caddy, 453 F.3d 1151, 1154 (9th Cir. 2006)
16 (quoting Doe v. Unocal, 248 F.3d 915, 922 (9th Cir. 2001)). “[U]ncontroverted allegations
17 in the complaint must be taken as true,” AT & T v. Compagnie Bruxelles Lambert, 94 F.3d
18 586, 588 (9th Cir. 1996), and “[c]onflicts between parties over statements contained in
19 affidavits must be resolved in the plaintiff’s favor.” Dole Food Co. v. Watts, 303 F.3d 1104,
20 1108 (9th Cir. 2002) (citations omitted).
21 District courts have the power to exercise personal jurisdiction to the extent
22 authorized by the law of the state in which they sit. Fed. R. Civ. Proc. (4)(k)(1)(A);
23 Panavision Int’l, L.P. v. Toeppen, 141 F.3d 1316, 1320 (9th Cir. 1998). Because
24 California’s long-arm statute authorizes personal jurisdiction coextensive with the Due
25 Process Clause of the United States Constitution, (see Cal. Civ. Code § 410.10), this Court
26 may exercise personal jurisdiction over a nonresident defendant when that defendant has
27 “at least ‘minimum contacts’ with the relevant forum such that the exercise of jurisdiction
28 ‘does not offend traditional notions of fair play and substantial justice.’” Schwarzenegger,
1 374 F.3d at 801 (citing Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)). The
2 contacts must be of such a quality and nature that defendant could reasonably expect “being
3 haled into court there.” World-Wide Volkswagen v. Woodson, 444 U.S. 286, 297 (1980).
4 B. Analysis
5 This Court follows the Ninth Circuit’s three-prong test for analyzing specific
6 jurisdiction over a defendant:
7
“Specific” jurisdiction exists if (1) the defendant has performed some
8 act or consummated some transaction within the forum or otherwise
purposefully availed himself of the privilege of conducting activities
9
within the forum, (2) the claim arises out of or results from the
10 defendant’s forum-related activities, and (3) the exercise of
jurisdiction is reasonable.
11
12 Mattel, Inc. v. Greiner & Hausser GmbH, 354 F.3d 857, 863 (9th Cir. 2003) (quoting
13 Bancroft & Masters v. Augusta Nat’l Inc., 223 F.3d 1082, 1086 (9th Cir. 2000)). Where
14 plaintiff has made a prima facie showing as to the first two prongs of the specific personal
15 jurisdiction test, jurisdiction will be considered to be “presumptively reasonable.” Roth v.
16 Garcia Marquez, 942 F.2d 617, 625 (9th Cir. 1991) (emphasis in original). Defendant
17 must then present compelling circumstances to rebut the presumption. Id.
18 The first prong necessary to establish specific personal jurisdiction “includes both
19 purposeful availment and purposeful direction. This prong may be satisfied by purposeful
20 availment of the privilege of doing business in the forum; by purposeful direction of
21 activities at the forum; or by some combination thereof.” Yahoo! Inc. v. La Ligue Le
22 Racisme Et L’Antisemitisme, 433 F.3d 1199, 1206 (9th Cir. 2006). Depending on the
23 nature of the cause of action, courts treat this first prong differently. In cases arising from
24 tort, courts “typically inquire whether a defendant ‘purposefully directs his activities’ at
25 the forum state, applying an ‘effects’ test that focuses on the forum in which the defendant’s
26 actions were felt, whether or not the actions themselves occurred within the forum.” Id.
27 (citing Schwarzenegger, 374 F.3d at 803 (internal citation omitted)). Conversely, in cases
28 arising from contract disputes, courts “typically inquire whether a defendant ‘purposefully
1 avails itself of the privilege of conducting activities’ . . . in the forum, focusing on activities
2 such as . . . executing a contract.” Id. (citing Schwarzenegger, 374 F.3d at 802). In this
3 case, Petonak alleges claims against all five Third-Party Defendants for breach of contract,
4 breach of implied obligation of good faith and fair dealing, and breach of fiduciary duty.
5 (See Petonak FAC). Petonak’s tort claims arise out of the alleged breach of contract claim.
6 Thus, a purposeful availment analysis is appropriate. See Schwarzenegger, 374 F.3d at 802.
7 “Purposeful availment analysis turns upon whether the defendant’s contacts are
8 attributable to his own actions or solely to the actions of the plaintiff.” Decker Coal Co. v.
9 Commonwealth Edison Co., 805 F.2d 834, 840 (9th Cir. 1986) (citing Burger King Corp.
10 v. Rudzewicz, 471 U.S. 462, 470-72 (1985). “To have purposefully availed itself of the
11 privilege of doing business in the forum, a defendant must have ‘performed some type of
12 affirmative conduct which allows or promotes the transaction of business within the forum
13 state.’” Boschetto v. Hansing, 539 F.3d 1011, 1016 (9th Cir. 2008) (quoting Sher, 911 F.2d
14 at 1362). The business activities must “‘reach out beyond one state and create continuing
15 relationships and obligations[.]’” Id. at 1017 (quoting Travelers Health Ass’n v. Com. of
16 Va. ex rel. State Corp. Comm’n, 339 U.S. 643, 647 (1950)). “[T]he plaintiff cannot be the
17 only link between the defendant and the forum. Rather, it is the defendant’s conduct that
18 must form the necessary connections with the forum State that is the basis for its
19 jurisdiction over him.” Walden v. Fiore, 571 U.S. 277, 285-86 (2014) (citing Burger King
20 Corp., 471 U.S. at 478). Thus, courts “look[] to the defendant’s contacts with the forum
21 State itself, not the defendant’s contact with persons who reside there.” Id. at 285 (citing
22 Int’l Shoe Co., 326 U.S. at 319). These requirements “must be met as to each defendant
23 over whom a . . . court exercises jurisdiction.” Bristol-Myers Squibb Co. v. Superior Ct. of
24 California, San Francisco Cnty., 582 U.S. 255, 268 (2017) (internal quotations and
25 citations omitted).
26 Here, Petonak alleges this Court has personal jurisdiction over each Third-Party
27 Defendant based on their individual and joint contacts with California. (Petonak FAC at
28 ¶¶ 2-4). Specifically, Petonak alleges the Third-Party Defendants had continuous contacts
1 and connections, as they communicated regarding the Policy via mail, phone, and email,
2 made administrative and coverage decisions related to Petonak’s insurance claim, and
3 collected premiums. (Id.; Opp’n to Non-Insurer MTD at 10-12). Petonak asserts that this
4 activity was expressly aimed or targeted to California residents, and the harm occurred in
5 California. (Opp’n to Non-Insurer MTD at 11). Petonak also supports personal jurisdiction
6 under an agency and alter ego theory. (Petonak FAC at ¶ 4; Opp’n to Non-Insurer MTD
7 at 14-15).
8 First, Petonak alleges Starr Wright Insurance is a Delaware corporation with its
9 principal place of business in Wilmington, Delaware. (Petonak FAC at ¶ 7). Starr-Wright
10 USA is also a Delaware corporation with its principal place of business in Atlanta, Georgia.
11 (Id. at ¶ 9). Even though Petonak sued these two entities individually, he alleges they are
12 the same entity because Starr-Wright USA is the “d/b/a/” of Starr Wright Insurance. (Id.
13 at ¶¶ 13, 45). As such, they both participated in the processing of Petonak’s claim and
14 denial of coverage as the program administrators “responsible for administrative functions,
15 receiving new claims, and issuing certificates to policy holders” in California. (Id.; Opp’n
16 to Non-Insurer MTD at 11). In his opposition, Petonak alleges that there is a “substantial
17 connection” between Starr Wright Insurance, Starr-Wright USA, and California because
18 the communications between them and Petonak “were a fundamental part of the business
19 relationship.” (Opp’n to Non-Insurer MTD at 11-12). Petonak further alleges that Starr
20 Wright Insurance’s “purpose[] in the business relationship relied heavily on telephone and
21 mail communications in order to fulfill their role, receive claims, issue certifications, and
22 determine coverage.” (Id.)
23 Petonak goes on to allege Starr Adjustment is a Delaware corporation with its
24 principal place of business in Atlanta, Georgia. (Petonak FAC at ¶ 10). Petonak alleges
25 Starr Adjustment is the “claims-handling entity” that “evaluated the terms of the policy and
26 made the decision to deny P[etonak]’s claim and coverage.” (Id. at ¶¶ 13, 45, 59).
27 Lastly, Starr Wright Risk is a Delaware corporation with its principal place of
28 business in Wilmington, Delaware. (Id. at ¶ 11). Petonak alleges Starr Wright Risk is the
1 master policyholder that was “responsible for approving any and all changes and waivers
2 to the terms of the contracts with P[etonak]” and “routinely sen[t] information to the
3 members” of the Federal Employee Risk Management Association. (Id. at ¶ 45; Opp’n to
4 Non-Insurer MTD at 11).
5 Based on these allegations, the Court finds purposeful availment lacking as to each
6 Non-Insurer Third-Party Defendant. Petonak fails to allege sufficient facts to demonstrate
7 that any Non-Insurer Third-Party Defendant formed its own contacts in California by
8 contracting business there. Walden, 571 U.S. at 284 (“[T]o exercise jurisdiction consistent
9 with due process, the defendant’s suit-related conduct must create a substantial connection
10 with the forum State . . . the relationship must arise out of contacts that the ‘defendant
11 himself’ creates with the forum State.”) (quoting Burger King Corp., 471 U.S. at 475).
12 Rather, the only alleged connection between Non-Insurer Third-Party Defendants and
13 California is the contacts Starr Surplus or the Federal Employee Risk Management
14 Association (“the Association”) created with California via the contracts between Starr
15 Surplus, Petonak, and other third parties.
16 Furthermore, there are no allegations that any Non-Insurer Third-Party Defendant
17 affirmatively reached out to Petonak or any third party to transact business in California.
18 See Boschetto, 539 F.3d at 1016-17. Instead, each Non-Insurer Third-Party Defendant’s
19 alleged connections with California are based on their contact and communication with
20 people who reside there because of the relationships Starr Surplus and the Association
21 formed with those people. See Walden, 571 U.S. at 285 (“‘[M]inimum contacts’ analysis
22 looks to the defendant’s contacts with the forum State itself, not the defendant’s contacts
23 with persons who reside there.”). In other words, the only connection between each Non-
24 Insurer Third-Party Defendant and California is their relationships with other entities that
25 contract to provide insurance services to people who live in California. As such, each Non-
26 Insurer Third-Party Defendant’s contacts with California are not attributable to their own
27 independent actions but rather are based on the actions of Petonak, Starr Surplus, and other
28 third parties. Thus, the Court finds these contacts are not of such a quality and nature that
1 each Non-Insurer Third-Party Defendant could reasonably expect “being haled into court
2 there.” World-Wide Volkswagen, 444 U.S. at 297. Consequently, the Court finds Petonak
3 has not met his burden of demonstrating that jurisdiction is appropriate, as his allegations
4 are insufficient to demonstrate purposeful availment by any Non-Insurer Third-Party
5 Defendant. See In re W. States Wholesale Natural Gas Antitrust Litig., 715 F.3d 716, 742
6 (9th Cir. 2013) (“If any of the three requirements is not satisfied, jurisdiction in the forum
7 would deprive the defendant of due process of law”).
8 Furthermore, even accepting the allegations in the complaint as true, Petonak fails
9 to adequately plead alter ego or agency theory. As set forth in further detail, (infra Section
10 II.C.), Petonak only makes conclusory allegations that “Third-Party Defendants are liable
11 under the alter-ego theory. Third-Party Plaintiff is informed and believes and thereon
12 alleges that Third-Party Defendants [Starr-Wright USA], [Starr Wright Insurance], [Starr
13 Adjustment], [Starr Wright Risk], and [Starr Surplus] all share a unity of interest and
14 ownership that the separate companies merge to form a single enterprise. To treat each
15 Third-Party Defendant as separate would end in an inequitable result.” (Petonak FAC ¶
16 44). Petonak’s mere recitation of the elements is insufficient to establish an alter ego
17 theory. See Roman Catholic Archbishop of San Francisco v. Superior Court, 15 Cal. App.
18 3d 405, 411 (1971) (“Among the factors to be considered in applying the [alter ego]
19 doctrine are commingling of funds and other assets of the two entities, the holding out by
20 one entity that it is liable for the debts of the other, identical equitable ownership in the two
21 entities, use of the same offices and employees, and use of one as a mere shell or conduit
22 for the affairs of the other.”). Having held that Petonak does not adequately plead alter
23 ego, the Court will not determine whether personal jurisdiction under agency theory exists.5
24
25
26 5 The Court notes that the Supreme Court has held that agency theory cannot be used as a
27 means to establish general personal jurisdiction, but whether the theory can confer specific
jurisdiction is undecided. See Daimler AG v. Bauman, 571 U.S. 117, 134-35 (2014); see
28
1 In light of Petonak’s failure to establish personal jurisdiction over the Non-Insurer
2 Third-Party Defendants, the request for jurisdictional discovery is DENIED. See Central
3 States, S.E. & S.W. Areas Pension Fund v. Reimer Express World Corp., 230 F.3d 934,
4 946 (7th Cir. 2000) (In order to obtain discovery on jurisdictional facts, the plaintiff must
5 at least make a “colorable” showing that the Court can exercise personal jurisdiction over
6 the defendant). Non-Insurer Third-Party Defendant’s motion to dismiss pursuant to Rule
7 12(b)(2) is GRANTED.
8 II. Motions to Dismiss Pursuant to Fed. R. Civ. P. 12(b)(6)
9 A. Legal Standard
10 Federal Rule of Civil Procedure (“Rule”) 12(b)(6) permits dismissal of a cause of
11 action for “failure to state a claim upon which relief can be granted[.]” Fed. R. Civ. P.
12 12(b)(6). Rule 12(b)(6) tests the sufficiency of the complaint. Navarro v. Block, 250 F.3d
13 729, 732 (9th Cir. 2001). Dismissal is warranted under Rule 12(b)(6) where the complaint
14 lacks a cognizable legal theory. See Robertson v. Dean Witter Reynolds, Inc., 749 F.2d
15 530, 534 (9th Cir. 1984); see also Neitzke v. Williams, 490 U.S. 319, 326 (1989) (“Rule
16 12(b)(6) authorizes a court to dismiss a claim on the basis of a dispositive issue of law.”).
17 Alternatively, a complaint may be dismissed where it presents a cognizable legal theory
18 yet fails to plead essential facts under that theory. Robertson, 749 F.2d at 534. While a
19 plaintiff need not give “detailed factual allegations,” she must plead sufficient facts that, if
20 true, “raise a right to relief above the speculative level.” Bell Atlantic Corp. v. Twombly,
21 550 U.S. 544, 545 (2007).
22 “To survive a motion to dismiss, a complaint must contain sufficient factual matter,
23 accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal,
24 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 547). A claim is facially plausible
25 when the factual allegations permit “the court to draw the reasonable inference that the
26 defendant is liable for the misconduct alleged.” Id. In other words, “the non-conclusory
27 ‘factual content,’ and reasonable inferences from that content, must be plausibly suggestive
28 of a claim entitling the plaintiff to relief.” Moss v. U.S. Secret Service, 572 F.3d 962, 969
1 (9th Cir. 2009). “Determining whether a complaint states a plausible claim for relief will
2 . . . be a context-specific task that requires the reviewing court to draw on its judicial
3 experience and common sense.” Iqbal, 556 U.S. at 679.
4 In reviewing a motion to dismiss under Rule 12(b)(6), the court must assume the
5 truth of all factual allegations and must construe all inferences from them in the light most
6 favorable to the nonmoving party. Thompson v. Davis, 295 F.3d 890, 895 (9th Cir. 2002);
7 Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996). However, legal
8 conclusions need not be taken as true merely because they are cast in the form of factual
9 allegations. Ileto v. Glock, Inc., 349 F.3d 1191, 1200 (9th Cir. 2003); Western Mining
10 Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981).
11 When ruling on a motion to dismiss, the court may consider the facts alleged in the
12 complaint, documents attached to the complaint, documents relied upon but not attached
13 to the complaint when authenticity is not contested, and matters of which the court takes
14 judicial notice. Lee v. City of Los Angeles, 250 F.3d 668, 688-89 (9th Cir. 2001).
15 Upon determining that any deficiencies in the complaint may be cured by adding
16 additional facts, the court should permit the party to amend the complaint. See DeSoto v.
17 Yellow Freight Sys., Inc., 957 F.2d 655, 658 (9th Cir. 1992).
18 B. Motions to Dismiss the Third Cause of Action for Breach of Fiduciary
Duty 6
19
20 Both Starr Surplus and Non-Insurer Third-Party Defendants seek to dismiss the third
21 cause of action for breach of fiduciary duty on the ground that the alleged insurer-insured
22 relationship is not a fiduciary relationship as a matter of law and, therefore, Petonak failed
23 to state a claim upon which relief can be granted. (Starr Surplus MTD at 4-5; Non-Insurer
24 MTD at 20-21).
25
26
27 6 The Court addresses both Starr Surplus’ and Non-Insurer Third-Party Defendants’
motions to dismiss the third cause of action for breach of fiduciary duty under this heading.
28
1 In response, Petonak argues that he has alleged sufficient facts to demonstrate a
2 fiduciary relationship and whether Third-Party Defendants had a fiduciary relationship
3 with Petonak is a question of material fact for the jury to decide. (Opp’n to Starr Surplus
4 MTD at 5-8; Opp’n to Non-Insurer MTD at 13-14). Petonak additionally argues that Starr
5 Surplus acted as an attorney-in-fact by providing administrative and management services
6 to the Federal Employee Risk Management Association, and therefore owed a fiduciary
7 duty to Petonak as a member of the Association. (Opp’n to Starr Surplus MTD at 8-9).
8 Under California law, a cause of action for breach of fiduciary duty requires “the
9 existence of a fiduciary relationship, its breach, and damages proximately caused by that
10 breach.” Pierce v. Lyman, 1 Cal. App. 4th 1093, 1101 (1991). The existence of a fiduciary
11 relationship is a question of law. Barbara A. v. John G., 145 Cal. App. 3d 369, 383 (1983)
12 (“[T]he court determines as a matter of law that a fiduciary relationship exists[.]”). As it
13 relates to the insurer-insured relationship, the California Supreme Court has specifically
14 held that no fiduciary relationship exists between an insurer and an insured as it “is not a
15 true ‘fiduciary relationship’ in the same sense as the relationship between trustee and
16 beneficiary, or attorney and client.” Vu v. Prudential Prop. & Cas. Ins. Co., 26 Cal. 4th
17 1142, 1150-51 (2001). Instead, the relationship between an insurer and an insured is
18 primarily contractual rather than fiduciary. See Gibson v. Gov’t Emps. Ins. Co., 162 Cal.
19 App. 3d 441, 449-50 (1984) (“[A]ny fiduciary duty existing between an insurer and its
20 insured is governed by the terms of the insurance contract in effect between them[.]”). Due
21 to its contractual nature, the insurer-insured relationship is “characterized by unequal
22 bargaining power in which the insured must depend on the good faith and performance of
23 the insurer.” Vu, 26 Cal. 4th at 1151 (citations omitted). As such, an insurer “owes no
24 obligation to consider the interests of its insured above its own.” Vill. Northridge
25 Homeowners Assn. v. State Farm Fire & Cas. Co., 50 Cal. 4th 913, 929 (2010) (quoting
26 Morris v. Paul Revere Life Ins. Co., 109 Cal. App. 4th 966, 973 (2003)). California courts
27 “impose ‘special and heightened’ duties, but while these ‘special’ duties are akin to, and
28 often resemble, duties which are also owed by fiduciaries, the fiduciary-like duties arise
1 because of the unique nature of the insurance contract, not because the insurer is a
2 fiduciary.” Vu, 26 Cal. 4th at 1151 (internal quotations and citations omitted). Thus, “an
3 insurer’s breach of its ‘fiduciary-like duties’ is adequately redressed by a claim for breach
4 of the covenant of good faith and fair dealing implied in the insurance contract[,]” rather
5 than a claim for breach of fiduciary duty. Tran v. Farmers Grp., Inc., 104 Cal. App. 4th
6 1202, 1211-12 (2002).
7 Petonak’s argument that Third-Party Defendants owed him a fiduciary duty because
8 they acted as his agents when they “took on the responsibility to defend him and provided
9 him with attorneys,” is unpersuasive. (Opp’n to Starr Surplus MTD at 7). Third-Party
10 Defendants did not take on the responsibility to defend Petonak as he asserts—his attorneys
11 did. (See Petonak FAC at ¶¶ 28-29 (“Third-Party Defendants . . . referred Petonak to
12 Brownell Landrigan, P.C. in Washington, D.C. to represent him for the claim . . . Brownell
13 Landrigan assumed representation for the OPR investigation.”) (emphasis added)).
14 Petonak’s first amended third-party complaint does not allege any facts to support a finding
15 that any Third-Party Defendant “knowingly undertook the obligations of a fiduciary” by
16 “act[ing] on behalf and for the benefit of another.” City of Hope Nat'l Med. Ctr. v.
17 Genentech, Inc., 43 Cal. 4th 375, 386 (2008). Starr Surplus’ actions of referring Petonak
18 to defense attorneys and paying any legal bill that was subject to a later policy coverage
19 determination on whether he was acting in the course and scope of his employment was
20 within the normal course and scope of the insurer-insured relationship.7
21 While there is ample case law to support the proposition that an attorney hired by an
22 insurer to defend an insured owes a fiduciary duty to the insured and the insurer, Petonak
23
24
25 7 The insurance policy that is attached to the amended third-party complaint provides in
relevant part: “Coverage B – Legal Defense Expense Coverage . . . the Insurer shall select
26
counsel and pay Claims Expenses for a Claim arising out of any civil proceedings . . . made
27 against the Insured . . . and which arises out of a Wrongful Act[,] . . . [which] shall mean
any act, error, or omission . . . which directly relate to or arise out of the . . . Course and
28
1 does not cite, and the Court in not aware of, any case law to support the proposition that a
2 fiduciary relationship is created between an insurer and the insured when an insurer hires
3 counsel to defend the insured under a policy. See, e.g., Gafcon, Inc. v. Ponsor & Assocs.,
4 98 Cal. App. 4th 1388, 1406 (2002) (“[A]n attorney retained by an insurance company to
5 defend its insured under the insurer’s contractual obligation to do so represents and owes
6 a fiduciary duty to both the insurer and insured.”); Bogard v. Emps. Cas. Co., 164 Cal.
7 App. 3d 602, 609 (1985) (“The attorney hired by the insurance company to defend in an
8 action against the insured owes fiduciary duties to two clients: the insurer and the
9 insured.”). As such, the Court finds Starr Surplus’ duties under the policy as the insurer to
10 act in good faith in selecting counsel and paying claims expenses are “special and
11 heightened duties” that arose “because of the unique nature of the insurance contract, not
12 because the insurer is a fiduciary.” Vu, 26 Cal. 4th at 1151. The alleged breach of those
13 duties “is adequately redressed by a claim for breach of the covenant of good faith and fair
14 dealing implied in the insurance contract[,]” not a claim for breach of fiduciary duty. Tran,
15 104 Cal. App. 4th at 1211-12.
16 In conclusory fashion, Petonak also states that the California Supreme Court has not
17 yet ruled on whether there is a fiduciary relationship between an insurance broker and an
18 insured. (Opp’n to Starr Surplus MTD at 8). An insurance broker “is one who acts as a
19 middleman between the insured and the insurer, soliciting insurance from the public under
20 no employment from any special company, and, upon securing an order, placing it with a
21 company selected by the insured or with a company selected by himself or herself[.]” Am.
22 Way Cellular, Inc. v. Travelers Prop. Cas. Co. of Am., 216 Cal. App. 4th 1040, 1052 (2013)
23 (quoting Krumme v. Mercury Ins. Co., 123 Cal. App. 4th 924, 929 (2004)). Petonak
24 provides no information or support as to why Starr Surplus is an insurance broker and, in
25 fact, the allegations in Petonak’s complaint identifies Starr Surplus as the insurer that
26 issued the policy, not as “a middleman between the insured and the insurer.” (Petonak
27 FAC at ¶¶ 13, 45).
28 Next, the Court turns to Petonak’s argument that Starr Surplus breached its fiduciary
1 duty to him as a member of the Federal Risk Management Association because Starr
2 Surplus is the Association’s attorney-in-fact. Petonak points to the first page of the policy
3 where the Insured is named as “Each Civilian Employee of the Federal Government of the
4 United States who is a member of Federal Employee Risk Management Association….”
5 and argues “to the extent [Starr Surplus] acted as an attorney-in-fact, providing
6 administrative and management services to the Federal Employee Risk Management
7 Association, it had a fiduciary duty to members of the Federal Employee Risk Management
8 Association, which included Petonak.” (Opp’n to Starr Surplus MTD at 8) (capitalization
9 normalized).
10 Petonak cites Tran v. Farmers Grp., Inc., 104 Cal. App. 4th 1202 (2003) for its
11 holding that an attorney-in-fact owes the insured a limited fiduciary duty under a power of
12 attorney. However, Petonak’s reliance on Tran is misplaced. The Tran Court explained
13 that an interinsurance exchange “is an unincorporated business organization made up of
14 subscribers and managed by an attorney-in-fact. The exchange is the insurer and the
15 subscribers are the insureds. The subscribers execute powers of attorney appointing the
16 attorney-in-fact to act on their behalf. The attorney-in-fact executes the exchange’s
17 insurance contracts.” 104 Cal. App. 4th at 1210. As such, an attorney-in-fact of an
18 exchange who manages the business of the exchange may owe the insured a fiduciary duty
19 under a power of attorney, which is strictly construed. Id. at 1206-14.
20 Here, Petonak’s first amended third-party complaint does not allege that the
21 Association is an interinsurance exchange or that Petonak is a subscriber who executed a
22 power of attorney to have Starr Surplus act on his behalf as an attorney-in-fact. See Delos
23 v. Farmers Grp., Inc., 93 Cal.App.3d 642, 652 (1979) (noting that attorneys-in-fact, in the
24 insurance context, are empowered in written underwriters’ agreements). Petonak’s
25 complaint does not contain any allegations regarding a separate agreement designating
26 Starr Surplus as attorney-in-fact. The Court finds the first amended third-party complaint
27 deficient in this regard.
28 For the reasons discussed, the Court GRANTS both Starr Surplus’ and Non-Insurer
1 Third-Party Defendants’ motions to dismiss the third cause of action for breach of fiduciary
2 duty WITH PREJUDICE. (ECF Nos. 51, 52 at 20-22). Accordingly, Petonak’s request
3 for leave to amend the claim for breach of fiduciary duty is DENIED.
4 C. Non-Insurer Third-Party Defendants’ Motion to Dismiss As Not Proper
Parties
5
6 Non-Insurer Third-Party Defendants seek dismissal from Petonak’s first amended
7 third-party complaint because they are not the insurer and, thus, not proper parties to a
8 breach of insurance contract and breach of obligation of good faith and fair dealing (“bad
9 faith”) claim. (Non-Insurer MTD at 18-20). They contend that the first amended third-
10 party complaint is entirely based on alleged breaches of the policy and related alleged
11 insurer duties, and Starr Surplus as the insurer is the only proper Third-Party Defendant.
12 (Id.)
13 Petonak’s first amended third-party complaint asserts claims against Non-Insurer
14 Third-Party Defendants under theories of direct and vicarious liability, including alter ego
15 and agency theories. (Petonak FAC at ¶¶ 4, 13, 44-45, 58-59). In his opposition, Petonak
16 adds a third joint venture theory. (Opp’n to Non-Insurer MTD at 12-13). The Court
17 addresses each theory in turn.8
18 1. Direct Liability
19 Petonak alleges that Non-Insurer Third-Party Defendants are directly liable for
20 breach of contract and breach of the implied obligation of good faith and fair dealing
21 because “[t]he contractual agreement is between [all] Third-Party Defendants and
22 P[etonak.]” (Petonak FAC at ¶ 42).
23 The essential elements of a contract under California law are (1) parties capable of
24
25
26 8 Because the Court grants Third-Party Defendants’ motions to dismiss the third cause of
27 action for breach of fiduciary duty, (supra Section II.B.), the Court only discusses the
remaining two causes of action for breach of contract and breach of the implied obligation
28
1 contracting, (2) the consent of those parties, (3) a lawful object, and (4) adequate
2 consideration. Cal. Civ. Code § 1550. “The prerequisite for any action for breach of the
3 implied covenant of good faith and fair dealing is the existence of a contractual relationship
4 between the parties, since the covenant is an implied term in the contract.” Smith v. City &
5 Cnty. of San Francisco, 225 Cal. App. 3d 38, 49 (1990).
6 Here, the first amended third-party complaint does not demonstrate the existence of
7 a contractual relationship between Petonak and any Non-Insurer Third-Party Defendant.
8 The only two bargaining parties identified in the contract are Petonak, as the insured, and
9 Starr Surplus, as the insurer. (See “Insurance Policy”, ECF No. 47-1 at 4 (“Throughout
10 this Policy the words ‘Insured’ and ‘you’ refer to the Insured/Certificate Holder indicated
11 in Item 1 a of the Declarations to this Policy. The words “Insurer” and “we” refer to Starr
12 Surplus Lines Insurance Company providing this insurance.”)). Furthermore, Starr Surplus
13 is the only Third-Party Defendant that signed the policy as the contracting party, (Insurance
14 Policy at 15-16, 18-19), and Petonak does not allege or point to any provision in the policy
15 evidencing that any of the Non-Insurer Third-Party Defendants consented to being parties
16 to the contract. Indeed, Petonak acknowledges the “lack of contractual privity” between
17 the parties in his opposition. (See Opp’n to Non-Insurer MTD at 13) (“D[efendants] were
18 at all times aware of the contract and the terms it contained, and despite the lack of
19 contractual privity, they were bound to deal fairly with P[etonak]’s claim.”) (emphasis
20 added)).
21 Thus, the Court finds Petonak fails to state a cause of action for breach of contract
22 against any Non-Insurer Third-Party Defendant under a theory of direct liability, as the
23 first amended third-party complaint does not allege sufficient facts to demonstrate they
24 were parties to the insurance contract. Petonak also fails to state a cause of action for
25 breach of the implied obligation of good faith and fair dealing against any Non-Insurer
26 Third-Party Defendant because there is no contractual relationship between them. See
27 Smith, 225 Cal. App. 3d at 49.
28 / / /
1 2. Alter Ego
2 Next, Petonak alleges that Non-Insurer Third-Party Defendants are the alter egos of
3 each other and Starr Surplus. (Petonak FAC at ¶¶ 4, 44-45, 59).
4 “The alter ego doctrine arises when a plaintiff comes into court claiming that an
5 opposing party is using the corporate form unjustly and in derogation of the plaintiff’s
6 interests.” Mid-Century Ins. Co. v. Gardner, 9 Cal. App. 4th 1205, 1212 (1992) (quoting
7 Mesler v. Bragg Mgmt. Co., 39 Cal. 3d 290, 300 (1985)). To find any Non-Insurer Third-
8 Party Defendant to be each other’s and Starr Surplus’ alter ego, Petonak must make out a
9 prima facie case showing “(1) that there is such unity of interest and ownership that the
10 separate personalities of [Starr Surplus and Non-Insurer Third-Party Defendants] no longer
11 exist and (2) that failure to disregard [their separate identities] would result in fraud or
12 injustice.” Am. Tel. & Tel. Co. v. Compagnie Bruxelles Lambert, 94 F.3d 586, 591 (9th Cir.
13 1996) (quoting Flynt Distrib. Co. v. Harvey, 734 F.2d 1389, 1393 (9th Cir. 1984)). Both
14 elements must be met before the Court can make an alter ego finding. Associated Vendors,
15 Inc. v. Oakland Meat Co., 210 Cal. App. 2d 825, 837 (1962). The determination of alter
16 ego liability is a question of fact. Misik v. D’Arco, 197 Cal. App. 4th 1065, 1071-72 (2011)
17 (citing Alexander v. Abbey of the Chimes, 104 Cal. App. 3d 39, 46 (1980).
18 In making a determination as to the first element, California courts have relied on a
19 number of factors, including but not limited to the following: commingling of assets;
20 failure to segregate funds of the separate entities; unauthorized diversion of corporate funds
21 or assets to other than corporate uses; failure to maintain minutes or adequate corporate
22 records; the confusion of the records of the separate entities; identical equitable ownership
23 of the entities; the identification of the equitable owners thereof with the domination and
24 control of the entities; use of the same office or business location; employment of the same
25 employees and/or attorney; inadequate capitalization; the total absence of corporate assets;
26 use of a corporation as a mere shell, instrumentality, or conduit for a single venture or the
27 business of an individual or another corporation; disregard of legal formalities and the
28 failure to maintain arm’s length relationships among related entities; and the formation and
1 use of a corporation to transfer to it the existing liability of another entity. See Associated
2 Vendors, Inc., 210 Cal. App. 2d at 838-40 (internal quotations and citations omitted); see
3 also Sonora Diamond Corp. v. Superior Ct., 83 Cal. App. 4th 523, 538-39 (2000); Williams
4 v. Progressive Cnty. Mut. Ins. Co., No. 17-CV-2282-AJB-BGS, 2019 WL 1434241, *2-3
5 (S.D. Cal. Mar. 29, 2019).
6 Here, Petonak’s first amended third-party complaint is devoid of the requisite factual
7 allegations needed to support alter ego liability. Petonak alleges Third-Party Defendants
8 are liable under the alter-ego doctrine because they “all share a unity of interest and
9 ownership that the separate companies merge to form a single enterprise. To treat each
10 Third-Party Defendant as separate would end in an inequitable result.” (Petonak FAC at ¶
11 44). Petonak further alleges Non-Insurer Third Party Defendants shared in the financial
12 gains from Petonak’s policy. (Id. at ¶ 45). Specifically, Starr Wright Risk is the master
13 policyholder responsible for approving all changes and waivers to the terms of the policy.
14 (Id. at ¶¶ 13, 45). Starr Adjustment is the claims handling entity that interpreted and
15 evaluated the terms of the policy, as well as made and communicated the decision to deny
16 Petonak’s claim. (Id.) Starr Wright Insurance and Starr-Wright USA are the same entity
17 because Starr-Wright USA is the “d/b/a/” of Starr Wright Insurance. (Id.) As such, they
18 both participated in the processing of Petonak’s claim and denial of coverage as the
19 program administrators responsible for administrative functions, receiving new claims, and
20 issuing certificates to policy holders. (Id.)
21 While these alleged facts might indicate some shared interest among Non-Insurer
22 Third-Party Defendants by financially benefiting from the roles they assumed in the
23 execution of the policy and the handling of the claims, they are not sufficient to make out
24 a prima facie case that there is such a unity of interest and ownership between the entities
25 that their separate personalities do not exist. For instance, there are no facts in the first
26 amended third-party complaint alleging that they commingle assets, have the same
27 employees or attorneys, share ownership, use the same office, or that their separate
28 corporate identities exist as mere instrumentalities of Starr Surplus. Nor does Petonak
1 allege facts to show that failure to disregard their separate corporate identities would result
2 in fraud or injustice. Without such facts supporting both elements of the alter ego doctrine,
3 it cannot be invoked. Sonora Diamond Corp., 83 Cal. App. 4th at 539. Consequently, the
4 Court concludes that the allegations in the first amended third-party complaint do not
5 satisfy either element of the alter ego doctrine. As a result, the Court finds that Petonak
6 fails to state a cause of action for breach of contract and breach of the implied obligation
7 of good faith and fair dealing against any Non-Insurer Third-Party Defendant based on
8 alter ego liability.
9 3. Agency
10 In contrast to his allegations that Third-Party Defendants are alter egos of each other,
11 Petonak alleges Non-Insurer Third-Party Defendants acted as the agents of “the other
12 defendants.” (Petonak FAC at ¶ 13).
13 Agency is a legal and consensual relationship in which an agent acts on behalf of
14 and is subject to the control of a principal. Am. Airlines, Inc. v. Mawhinney, 904 F.3d 1114,
15 1124 (9th Cir. 2018) (citing Edwards v. Freeman, 34 Cal. 2d 589, 591-92 (1949)). To
16 demonstrate an agency relationship, Petonak “must make a prima facie showing that the
17 subsidiary represents the parent corporation by performing services sufficiently important
18 to the parent corporation that if it did not have a representative to perform them, the parent
19 corporation would undertake to perform substantially similar services.” Harris Rutsky &
20 Co. Ins. Servs. v. Bell & Clements Ltd., 328 F.3d 1122, 1135 (9th Cir. 2003) (internal
21 quotations and citations omitted). Liability may be attributed to a parent corporation
22 “where the nature and extent of the control exercised over the subsidiary by the parent is
23 so pervasive and continual that the subsidiary may be considered nothing more than an
24 agent or instrumentality of the parent, notwithstanding the maintenance of separate
25 corporate formalities[.]” Sonora Diamond Corp., 83 Cal. App. 4th at 541. “Control is the
26 key characteristic of the agent/principal relationship.” Id. (citing Cislaw v. Southland
27 Corp., 4 Cal. App. 4th 1284, 1292–1296 (1992). Thus, “[i]n the absence of the essential
28 characteristic of the right of control, there is no true agency[.]” Edwards, 34 Cal. 2d at 592.
1 Here, Petonak’s first amended third-party complaint does not identify which Third-
2 Party Defendant is the principal, the agent, the parent corporation, or the subsidiary. Nor
3 does Petonak allege that any Third-Party Defendant exercised control over another Third-
4 Party Defendant. Petonak merely alleges that each Non-Insurer Third-Party Defendant
5 “acted as the agent of the other defendants” in describing the various roles each of them
6 played in the claims handling process. (Petonak FAC at ¶ 13). Without more facts, the
7 allegations contained in the first amended third-party complaint are insufficient to
8 demonstrate an agency relationship. Thus, the Court finds that Petonak fails to state a cause
9 of action for breach of contract and bad faith against any Non-Insurer Third-Party
10 Defendant based on an agency theory.
11 4. Joint Venture
12 In his opposition, Petonak argues that Third-Party Defendants were engaged in a
13 joint venture. (Opp’n to Non-Insurer MTD at 12-13). However, joint venture is not alleged
14 in Petonak’s first amended third-party complaint.9 (See Petonak FAC). In considering a
15 motion to dismiss for failure to state a claim, the Court may only consider the facts alleged
16 in the complaint, documents attached to the complaint, documents relied upon but not
17 attached to the complaint when authenticity is not contested, and matters of which the court
18 takes judicial notice. Fed. R. Civ. P. 12(b)(6); Lee, 250 F.3d at 688-89. Thus, even
19 assuming these additional allegations may constitute grounds to state a claim for breach of
20 contract and bad faith against any Non-Insurer Third-Party Defendant, they cannot be
21 considered when raised for the first time in opposition to a motion to dismiss. Id.
22 For the reasons discussed above, the Court finds that Petonak has not sufficiently
23 plead causes of action for breach of contract and breach of the implied obligation of good
24 faith and fair dealing against Non-Insurer Third-Party Defendants based on direct or
25
26
27 9 Nor is joint venture alleged in the proposed second amended third-party complaint that
is attached to Petonak’s pending motion for leave to amend the first amended third-party
28
1 vicarious liability. Thus, the Court GRANTS Non-Insurer Third-Party Defendants Rule
2 12(b)(6) motion to dismiss. (ECF No. 52-1 at 18-20). The Court also GRANTS Petonak’s
3 request for leave to amend. (Opp’n to Non-Insurer MTD at 16).
4 III. Petonak’s Motion for Leave to File a Second Amended Third-Party Complaint
5 Petonak seeks leave to amend the first amended third-party complaint to include
6 additional facts and allegations regarding Third-Party Defendants’ failure to provide him
7 with defense in, or indemnification for, the DAAP removal process and MSPB appeal, and
8 to claim attorney’s fees and costs incurred in connection with those proceedings. (Petonak
9 Mot. at 1-2, 6-8). The proposed amendments do not seek to add any new causes of action.
10 In response, Third-Party Defendants argue that Petonak’s motion should be denied
11 based on undue delay and futility. (See Opp’n to Petonak Mot.).
12 A. Legal Standard
13 According to Federal Rule of Civil Procedure 15(a), a party may amend its pleading
14 once as a matter of course within twenty-one days of service of a motion under Rule 12(b).
15 Otherwise, a party must obtain leave of the court or written consent from the adverse party
16 to amend. Fed. R. Civ. P. 15(a); Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048,
17 1061 (9th Cir. 2003) (citing Fed. R. Civ. P. 15(a)).
18 The Supreme Court has instructed lower courts to heed the language of Rule 15(a)
19 to grant leave freely when justice requires. Howey v. United States, 481 F.2d 1187, 1190
20 (9th Cir. 1973). Because Rule 15(a) mandates that leave to amend should be freely given
21 when justice so requires, the rule is to be interpreted with “extreme liberality.” United
22 States v. Webb, 655 F.2d 977, 979 (9th Cir. 1981).
23 Granting leave to amend rests in the sound discretion of the trial court. International
24 Ass’n of Machinists & Aerospace Workers v. Republic Airlines, 761 F.2d 1386, 1390 (9th
25 Cir. 1985). This discretion must be guided by the strong federal policy favoring the
26 disposition of cases on the merits. DCD Programs Ltd. v. Leighton, 833 F.2d 183, 186 (9th
27 Cir.1987). Because Rule 15(a) favors a liberal policy, the nonmoving party bears the
28 burden of demonstrating why leave to amend should not be granted. Genentech, Inc. v.
1 Abbott Laboratories, 127 F.R.D. 529 (N.D. Cal. 1989).
2 However, even though leave to amend is generally granted freely, it is not granted
3 automatically. See Zivkovic v. Southern Cal. Edison Co., 302 F.3d 1080, 1087 (9th
4 Cir.2002). Four factors are considered in determining whether to allow amendment of a
5 pleading: (1) prejudice to the opposing party; (2) undue delay; (3) bad faith; and (4) futility.
6 See Foman v. Davis, 371 U.S. 178, 182 (1962); see also Yakama Indian Nation v. State of
7 Wash. Dept. of Revenue, 176 F.3d 1241, 1246 (9th Cir. 1999); DCD Programs, 833 F.2d
8 at 186. These factors are not equally weighted; the possibility of delay alone, for instance,
9 cannot justify denial of leave to amend. DCD Programs, 833 F.2d at 186; Morongo Band
10 of Mission Indians v. Rose, 893 F.2d 1074, 1079 (9th Cir. 1990). Futility of amendment,
11 however, can justify denial of leave to amend, regardless of whether other factors are
12 applicable. Bonin v. Calderon, 59 F.3d 815, 845 (9th Cir. 1995). A proposed amended
13 pleading is futile if it would not be considered a legally sufficient pleading based upon the
14 same standard found in Federal Rule of Civil Procedure 12(b)(6). See Miller v. Rykoff-
15 Sexton, Inc., 845 F.2d 209, 214 (9th Cir. 1988).
16 The single most important factor is whether prejudice would result to the nonmovant
17 as a consequence of the amendment. See Eminence Capital, LLC, 316 F.3d at 1052; see
18 also William Inglis & Sons Baking Co. v. ITT Continental Baking Co., 668 F.2d 1014, 1053
19 (9th Cir. 1981). The responding party bears the burden of demonstrating prejudice. DCD
20 Programs, 883 F.2d at 187. When the responding party fails to demonstrate prejudice and
21 there lacks a strong showing of any other factor, trial courts are presumed to grant leave to
22 amend. Eminence Capital, LLC, 316 F.3d at 1052 (internal citation omitted); Bowles v.
23 Reade, 198 F.3d 752, 757 (9th Cir. 1999).
24 B. Analysis
25 1. Undue Delay
26 Third-Party Defendants argue that “Petonak did not adequately explain the delay”
27 in alleging facts related to the DAAP removal process and MSPB appeal, as those matters
28 were known to him when he first amended his third-party complaint as of right. (Opp’n to
1 Petonak Mot. at 6). Third-Party Defendants rely on a number of cases for the proposition
2 that leave to amend should be denied based on undue delay when the moving party either
3 knows or should know of the facts upon which the proposed amendment is based but fails
4 to include them in the original or first amended complaint without a valid explanation. (Id.
5 at 23-26).
6 In response, Petonak explains that his proposed amendments seek to update the
7 existing causes of action with facts and damages that have occurred since the filing of the
8 first amended third-party complaint. (Reply at 5). Petonak notes that in all but one of the
9 cases cited by Third-Party Defendants, a district court case in the district of South Dakota,
10 Waldner v. North American Truck & Trailer, Inc., 277 F.R.D. 401, 418 (D.S.D. 2011), the
11 moving party sought to add additional causes of action, and the court found prejudice to
12 the opposing party. (Id. at 4-5). Furthermore, in Waldner, the plaintiff did not file a motion
13 seeking leave to amend, which was required under the local rules. (Reply at 4-5). The
14 Court notes that Petonak added a joint venture theory in opposition to the motion to dismiss
15 but does not include the theory in his proposed second amended complaint. Petonak argues
16 that leave to amend should not be denied based on undue delay because the case is still in
17 the early stages of litigation, the parties have not completed their initial disclosures or
18 conducted formal discovery, and there is no bad faith, dilatory motive, or prejudice to
19 Third-Party Defendants. (Id.)
20 “Undue delay,” for purposes of determining whether to grant a motion for leave to
21 amend a pleading, “is delay that prejudices the nonmoving party or imposes unwarranted
22 burdens on the court.” Davis v. Powell, 901 F. Supp. 2d 1196, 1212 (S.D. Cal. 2012)
23 (internal quotations and citations omitted). Relevant to evaluating undue delay is (1)
24 whether the moving party knew or should have known the facts and theories raised by the
25 amendment in the original pleading, (2) the length of the delay measured from the time the
26 moving party obtained relevant facts, (3) whether discovery has closed, and (4) proximity
27 to the trial date. See Jackson v. Bank of Hawaii, 902 F.2d 1385, 1388 (9th Cir. 1990)
28 (internal quotations and citations omitted); see also Texaco, Inc. v. Ponsoldt, 939 F.2d 794,
1 798-99 (9th Cir. 1991) (internal quotations and citations omitted).
2 Here, Third-Party Defendants do not argue any delay-related prejudice, nor is there
3 any evidence that Petonak’s delay in seeking to add DAAP removal and MSPB appeal-
4 related facts to the complaint until after the MSPB proceedings concluded is prejudicial.
5 The MSPB appeal concluded after the filing of the first amended third-party complaint and
6 after Third-Party Defendants filed their motions to dismiss. Petonak alleges that the DAAP
7 removal and MSPB appeal proceedings were covered by his insurance policy and Third-
8 Party Defendants failed to provide coverage. Such facts are material to the case as the
9 insurance policy which is attached to the complaint may be interpreted to provide for
10 expenses incurred in connection with the claims arising from Ocampo’s allegations.
11 Furthermore, there is no allegation that Petonak’s motion was made in bad faith or
12 for dilatory reasons. The mere fact that Petonak could have moved at an earlier time to
13 amend does not constitute an adequate basis for denying leave to amend. See Howey v.
14 United States, 481 F.2d 1187, 1191 (9th Cir. 1973). As Petonak points out, this case is still
15 in its early stages of litigation. The parties have not completed their initial disclosures or
16 conducted formal discovery. No trial date has been set, and the Court vacated all the
17 pretrial dates reflected in the Court’s scheduling order on joint motion of the parties. For
18 these reasons, the Court concludes that the “undue delay” factor favors granting leave to
19 amend and granting leave to amend would not impose “unwarranted burdens on the court.”
20 See Davis, 901 F. Supp. 2d at 1212.
21 2. Futility
22 Third-Party Defendants also argue that Petonak’s motion should be denied based on
23 futility because the proposed second amended third-party complaint includes the same
24 fundamental defects as the first amended third-party complaint that are the subject of the
25 pending motions to dismiss. (Opp’n to Petonak Mot. at 6, 11-22). Specifically, Third-
26 Party Defendants argue that Petonak did not propose any amendments (1) curing the
27 alleged lack of personal jurisdiction over Non-Insurer Third-Party Defendants, (2) making
28 Non-Insurer Third-Party Defendants proper parties to the action for alleged breach of
1 duties allegedly owed by the insurer, Starr Surplus, (3) establishing a fiduciary relationship
2 for a breach of fiduciary duty cause of action, and (4) alleging that he tendered the DAAP
3 and MSPB matters to Third-Party Defendants for a defense under the insurance policy.
4 (Id.)
5 As previously discussed, Petonak alleges that the DAAP removal and MSPB appeal
6 proceedings were covered by his insurance policy and Third-Party Defendants failed to
7 provide coverage. Such facts are germane to the case and particularly relevant to the breach
8 of contract cause of action, as the insurance policy which is attached to the complaint may
9 be interpreted to provide for expenses incurred in connection with the claims arising from
10 Ocampo’s allegations. The Court agrees with Petonak’s argument that after tendering two
11 claims relating to the OPR investigation and Ocampo’s lawsuit, Third-Party Defendants
12 made it clear they would not provide coverage for anything related to Ocampo’s allegations
13 in their letter of August 20, 2018, because he was acting outside the course and scope of
14 his employment. (Reply at 3-4; Petonak FAC at ¶¶ 32-33 (August 20 letter stating, “there
15 is no coverage for the complaint under [Petonak’s] Policy and it appears that there is no
16 further coverage connected to the OPR investigation as well.” (emphasis added)). At that
17 point, tendering a third claim arising out of Ocampo’s allegations would have been futile.
18 Petonak’s removal by DAAP was directly “connected to” the OPR investigation initiated
19 by Ocampo’s allegations, and the MSPB appeal was the result of Petonak’s removal.
20 (Reply at 4). Thus, the Court finds that the futility factor favors granting leave to amend
21 to add facts related to the DAAP and MSPB matters.
22 However, the Court finds that Petonak’s proposed second amended third-party
23 complaint that is attached to his motion for leave to amend does not cure the deficiencies
24 discussed above relating to lack of personal jurisdiction and failure to state claims against
25 Non-Insurer Third-Party Defendants. Thus, for the reasons discussed above, the Court
26 GRANTS IN PART and DENIES IN PART Petonak’s motion for leave to amend. The
27 Court GRANTS Petonak’s motion for leave to amend to add additional facts and
28 allegations regarding the DAAP and MSPB matters. The Court DENIES Petonak’s motion
1 for leave to amend to file the proposed second amended third-party complaint that is
2 attached to his motion. (See ECF No. 60-2 at 10-25). Petonak may file a second amended
3 third-party complaint that comports with this Order within forty-five (45) days of the date
4 of this Order.
5 CONCLUSION AND ORDER
6 For the foregoing reasons IT IS HEREBY ORDERED:
7 1. The Court GRANTS the motions to dismiss the third cause of action for
8 breach of fiduciary duty in the first amended third-party complaint filed by Starr Surplus
9 and Non-Insurer Third-Party Defendants WITH PREJUDICE, (ECF No. 51; ECF No. 52
10 at 20-22), and DENIES Petonak’s request for leave to amend the third cause of action for
11 breach of fiduciary duty.
12 2. The Court GRANTS Non-Insurer Third-Party Defendants’ motion to dismiss
13 the first amended third-party complaint for lack of personal jurisdiction pursuant to Rule
14 12(b)(2) and for failure to state a claim pursuant to Rule 12(b)(6). (ECF No. 52). The
15 Court DENIES Petonak’s request for jurisdictional discovery. However, the Court
16 GRANTS Petonak’s request for leave to amend to add additional facts and allegations
17 relating to alter ego, agency, and joint venture, but not direct liability of Non-Insurer Third-
18 Party Defendants.
19 3. The Court GRANTS IN PART and DENIES IN PART Petonak’s motion
20 for leave to amend the first amended third-party complaint (ECF No. 60). The Court
21 GRANTS Petonak’s motion for leave to amend to add additional facts and allegations
22 regarding the DAAP and MSPB matters. However, the Court DENIES Petonak’s motion
23 for leave to amend to file the proposed second amended third-party complaint that is
24 / / /
25 / / /
26 / / /
27
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1 || attached to his motion. (See ECF No. 60-2 at 10-25). Petonak may file a second amended
2 || third-party complaint that comports with this Order within forty-five (45) days of the date
3 || of this Order.
4 IT IS SO ORDERED.
5 || DATED: September 27, 2023 M&S
6
7 JOIN A. HOUSTON |
UNITED STATES DISTRICT JUDGE
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